Paytm, leading payments and financial services company, said India has a potential of 10 crore merchant entities and more than 50 crore payment customers in the near term. It added that currently there are 25 crore merchants in UPI but only 1 crore merchants have devices.
“We believe overall subscriptions for payment and other services will be a large market. India could have a potential of 10 crore merchant entities and more than 50 crore payment customers in near term,” Paytm said in its latest earnings presentation. Paytm said bank partnerships to sell their products have a great opportunity, where FASTag and co-branded credit cards are already a success, and it identified EMI Aggregation on PG and remittance, among others, as next. For financial services, the company said it will focus on growing loan and stock brokerage offerings.
For its payment processing business, Paytm said it makes a net payment margin of 7-9 bps of GMV (gross merchandise value) on processing. Of the same, UPI gives the company 3-4 bps and other instruments give it 15-18 bps. “Since UPI is growing faster than other instruments, we expect blended margin to stabilize at 5 to 7 bps,” said the company.
About its subscription-as-a-service model, Paytm gave deeper insights into how it makes money from its devices business. “We charge around Rs 100 per month per active device. Some high-end device charges are higher (up to Rs 250 per month). Select installations get additional incentives from partner banks, RBI, NABARD etc. We take aggressive depreciation (2 years for Soundbox and 3 years for EDC) and expect to generate enough cash to fund net capex, in 12 to 18 months,” said the company.
The company said its payment processing charges will trend lower as a percentage of GMV because of higher UPI in mix and routing & rate optimisations.
Paytm’s rapidly growing lending business has been much talked about. The company said small credit is best served and collected digitally and that its payments customer base offers a large TAM for such loans.
“We help various lenders disburse small ticket personal loans and merchant loans. Postpaid drives credit volumes with small loan amounts of good quality. On disbursement of loans, we typically make 2.5 per cent to 3.5 per cent of loan value upfront,” said the company.
Paytm expects these margins (sourcing and collections) to trend upwards with scale. “We help various lenders disburse small ticket personal loans and merchant loans. Postpaid drives credit volumes with small loan amounts of good quality On disbursement of loans, we typically make 2.5 per cent to 3.5 per cent of loan value upfront,” said the company.
On collections, Paytm said it makes 0.5-1.5 per cent of the current disbursement value. In its credit cards business, Paytm monetises app traffic by providing marketing services to other businesses. “Co-branded credit cards give us upfront distribution revenue and lifetime usage fee. We have about 3 lakh cumulative activated cards as of September 2022 and retail average spend per active card is Rs 22,000-Rs 24,000 per month, with both showing healthy growth (in October 2022 we activated around 48,000 new cards),” the company said.
The company runs commerce business with cash profitability, enabling merchants to get more business by helping them sell tickets, gift vouchers and deals, etc. Paytm’s commerce GMV was Rs 2,021 crore, and it earned about 6 per cent revenues (Rs 125 crore).
Paytm gave deeper insights into its costs and said that being a platform business, it has two key costs — cost of building the platform and platform expansion. Paytm’s cost of building platform was Rs 401 crore in Q2 FY 2023 with an expected 10-15 per cent YoY increase on current base while the cost of expanding platform: marketing & sales, which is directly driven by revenue opportunity in the market, was Rs 309 crore in the last quarter.
The company said that despite investments in sales and marketing, it believes in improving profitability. Paytm recently had a strong second quarter in FY 2023, with a 76 per cent YoY surge in revenue to Rs 1,914 crore. After its Q2 results. the company “remains ahead” of its September 2023 profitability guidance.
Shares of One97 Communications, the owner of Paytm, on Friday were trading Rs 18.90, or 3.77 per cent, higher at Rs 519.75 apiece on the BSE during the day.